Public procurement must be used to achieve social goals

Female worker
Public procurement must be used to achieve social goals

This contribution by Agnes Jongerius, MEP (S&D/Netherlands) is part of our #SocialEurope campaign, which showcases how progressive cities and regions are championing social progress, both through their inspiring vision and concrete action. As coordinator of the European Parliament's Employment and Social Affairs committee, Agnes fights for fair minimum wages, against labour exploitation and for a more Social Europe. 

The EU’s rules for competition are designed to ensure fair and equal conditions for businesses, while leaving space for innovation, unified standards, and the development of small business. However, the buzzword competitiveness that is making its rounds is used as an excuse to be more critical on any progressive measures or legislation on environmental and social issues. This interpretation of competition is one-sided. It is high time that we reclaim it by making it a competition to better social standards.

Every year public authorities spend around EUR 2 trillion on the purchase of services, works and supplies, amounting to a staggering 14% of total EU GDP. Public money ought to be used for the common good. This sounds straightforward, but too often public money goes to companies that avoid labour laws. In Germany, for example, a luxury shopping mall and housing complex used hundreds of workers employed by subcontractors on an hourly wage of €6 and in Austria, railway staff provided by a Hungarian subcontractor received the significantly lower Hungarian minimum wage instead of the Austrian. These practices are not illegal, but bogus-subcontracting undermines the working conditions of what could otherwise have been decent quality jobs. 

Spending of public money is bound by the rules on public procurement. Under the current rules, the prevailing interpretation is for public authorities to award contracts solely based on the lowest price, fuelling a race to the bottom. With price as the main award criteria for lucrative government contracts, companies do what they can to offer the lowest price. This leads to loopholes to facilitate the underpayment of workers, worse working conditions, and the suppression of workers’ right to collective bargain. The price for the lowest costs is at the expense of the workers.  

Instead of fuelling a race to the bottom, public procurement must be used to achieve social objectives and create upward convergence. Most companies that are awarded government contracts are also active in the private sector. Companies do not (and cannot) suddenly lower pay and working conditions when working for private contractors instead of public authorities. Many requirements imposed by public authorities will therefore carry over to work in the private sector. The influence on the economy of the requirements set by public authorities when buying goods and services therefore extends far beyond its 14% share in the EU economy. 

In this way, conditionalities attached to public procurement could be used to attain social goals. Requirements could include workers being covered by a collective agreement, important ILO conventions being respected, working conditions being up to par, having a works council, having a certain gender balance and no gender pay gap, being transparent about pay, having little flex-contracts, or no unpaid traineeships. The possibilities are endless. Social public procurement is a powerful tool to help achieve a wide range of social objectives. 

While some business interests will of course object, other companies would be more than happy to welcome more socially responsible public procurement. More social procurement would mean that companies get out of this race to the bottom and can treat their workers with respect, without losing out on important public contracts. It would create truly fair competition. 

This idea of social conditionalities is not a novelty; it has been done before in one of the most contested pieces of legislation of the EU. In 2021 the EU took the firsts step together on creating social conditionalities in the reform of the Common Agricultural Policy. They ensured that CAP payments are linked to the respect of specific EU labour standards and that beneficiaries are incentivised to improve working conditions on farms. Of course there is still a world to win when it comes to the enforcement with help of proper labour inspections. Nevertheless a start was made to change the narrative. 

The current EU-directive on public procurement dates from 2014 and is due for a revision. While it leaves some space for social procurement, it falls short in many ways. One of the main issues of the current framework is a lack of legal certainty for contracting authorities. Especially when there is no applicable collective agreement, requiring one could be seen as discriminatory. In Malta, procurement is done based on a points system, where extra points are awarded to companies with company-level agreements. But these contracting authorities face constant lawsuits from companies that argue that they have been discriminated against based on these award criteria. The threat of potential lawsuits has a large chilling effect on national authorities that would be willing to include social criteria in their procurement, but now choose to play it safe and award contracts based solely on price. 

Despite the Commission confirming that compliance with labour law and collective agreements in public procurement is compulsary, Member States are hesitant. Especially as the wording in the text is leaving room for manoeuvre. Currently social award criteria may be applied, whereas a strong shall clause is needed.  Therefore we need a revision of the public procurement directive that provides legal clarity to public authorities that social criteria cannot be ground for discrimination and that moves beyond a voluntary approach to social procurement. 

Unfortunately, the Commission has not shown much interests in coming forward with a revision yet. They are not even leading the example.  Since 2014, more than one billion euros have been spent over workers’ rights violations. Amazon for example received 199 EU contracts worth almost 30 million euros despite its long history of union busting and workers’ rights violations. We cannot expect Member States and local governments to put in time and resources and face potential legal backlash to implement more social procurement, while EU institutions keep rewarding contracts solely on lowest price. 

An improved EU legal framework is an important first step towards fair competition that leads to upward convergence. Some Member States such as Portugal and Germany have already committed themselves to changing their national rules. Only awarding contracts to companies that comply with the working conditions laid down in the relevant collective agreements.  This needs to happen on a European level too. The Commission needs to step up and present the revision, either this mandate or in the new mandate. We need a revision of public procurement to implement social procurement at Union, national, and local level to ensure truly fair conditions for competition.